EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The EPAct Tax Aspects of the Aerotropolis

In the course of our energy tax practice, we began to realize that a
substantial number of the projects we work on relate to energy efficiency
aspects of facilities at large airport facilities or at airport dependent
support facilities, such as: parking garages , hotels , warehouses , truck
distributors , and port facilities. Multiple U.S. and international airports
are evolving into huge building complexes. For example, the Orange County
airport in California has more office building square footage than Los Angeles
and on February 18th, 2011, Indianapolis announced a 30 year plan to develop a
mini-city airport comple.

The term “Aerotropolis” was coined by Dr. John D. Kasarda,
Director of the Kenan Institute at the University of North Carolina at Chapel
Hill. Dr. Kasarda describes the development as follows: "airports will shape
business location and urban development in the 21st century as much as highways
did in the 20th century, railroads in the 19th and seaports in the 18th." In
the February 26th issue of the Wall Street Journal, Greg Lindsay writes that
"an Aerotropolis can be narrowly defined as a city planned around its airport
or more broadly as a city less connected to its land-bound neighbors than its
peers thousands of miles away.” The ideal Aerotropolis is an amalgam of
made-to-order office parks, convention hotels, cargo complexes, and even
factories which in some cases line runways. Many jurisdictions believe that the
creation of a thriving Aerotropolis is the key to modern era economic
development. One way to jump start the construction/assemblage of the
Aerotropolis is to integrate existing airports. For example, the planned
Indiana Aerotropolis would integrate 5 existing airports.

Changes in Terminal Facilities

Today's terminals are much larger than previous airports with a much more
elaborate in terminal consumer support system. Amenities include higher-end
restaurants and lounges, leading clothing stores, airline club facilities, and
a much broader range of retail offerings.

The Move to Large Specialized Support Structures

Older airports were surrounded by numerous smaller profile motels and
hotels, separate car rental facilities for each rental car brand, and numerous
private vendor parking garages. The newer Aerotropolis facilities have huge
airport hotels, very large airport owned multi-deck near terminal parking
facilities, and centralized car rental centers. This type of centralization
makes everything more convenient for the customers. Trade shows and business
meetings can be held right at larger airport hotels and hotel convention
centers. Parking takes less time and the central rental facilities reduce the
number of airport buses traversing the airport while also eliminating waiting
time. These newer and larger facilities are better suited for leveraging EPAct
tax opportunities which are based on square footage.

EPAct

Pursuant to Energy Policy Act (EPAct) Section 179D, warehouses making
qualifying energy-reducing investments in their new or existing locations can
obtain immediate tax deductions of up to $1.80 per square foot.

If the building project doesn't qualify for the maximum EPAct $1.80 per
square foot immediate tax deduction, there are tax deductions of up to $0.60
per square foot for each of the three major building subsystems: lighting, HVAC
(heating, ventilating, and air conditioning), and the building envelope. The
building envelope is every item on the building’s exterior perimeter that
touches the outside world including roof, walls, insulation, doors, windows and
foundation.

Alternative Energy Tax Credits and Grants

There are multiple 30% or 10% tax credits available for a variety of
alternative energy measures with varying credit termination dates. For example,
the 30% solar tax credit expires January 1st 2017 and the 10% Combined Power
tax credit also expires January 1st 2017. The 30% closed loop and open loop
biomass credit expires January 1st, 2014.

All alternative measures that are eligible for the 30% and 10% tax credits
are also eligible for equivalent cash grants for the three years staring
January 1st 2009 and ending December 31st 2011.

LED Lighting at the Aerotropolis

Airports are taking the lead with Light Emitting Diode (LED) building
lighting applications. Throughout the country, many parking garages are quickly
moving to LED lighting. The biggest category of airport LED parking garage tax
projects we have worked on are large airport parking facilities. Also, many
leading brand coffee sellers, restaurants, hotels, and retailers typically
found at airports are quickly moving to low wattage LED lighting. This means
that airport facility personnel and energy managers will have the first move
advantage of evaluating a wide range of LED lighting applications. As low
wattage LED lighting expands into more and more facilities, airport energy
managers will be able to cap the permissible wattage levels at all airport
leased space to a much lower level. By capping lighting wattage levels in their
leases at a maximum wattage standard based on either airport policy, maximum
EPAct tax deduction wattage level, or local building energy code, airport
energy mangers will be able to greatly reduce their heating, ventilation, and
air conditioning (HVAC) costs related to offsetting higher heat generating
higher wattage's.

HVAC is the Largest Aerotropolis Building Energy User

The largest Aerotropolis buildings that host people include the main
terminal facilities, shops, food courts, baggage areas and airport hotels are
conditioned (meaning they are air conditioned spaces.) Whenever a building
space is air conditioned, HVAC is by far the largest building energy use
category. Accordingly, it is critical for large and growing Aerotropolis
facilities to invest in very energy efficient HVAC systems such as central
chiller plants, magnetic bearing chillers, thermal storage, geothermal, and
energy recovery ventilation. Most often these very energy efficient HVAC
measures will qualify for Section 179D EPAct tax deductions. These facilities
are also excellent candidates for HVAC related alternative energy generation
measures such as combined heat and power, micro turbines, geothermal and fuel
cells, all of which are eligible for tax credits and very favorable tax
depreciation.

Aerotropolis Warehouses and Distribution Centers

Aerotropolis complexes are in large commercial markets such as: California,
Newark, New Jersey, Atlanta, Georgia, Dallas Fort Worth, Texas, Louisville,
Kentucky, Memphis, Tennessee, and Indianapolis, Indiana are surrounded by huge
numbers of very large warehouses and distribution centers. Since the Section
179 EPAct tax incentives are based on square footage these facilities can avail
themselves of substantial tax incentives to support energy efficiency building
investments. For example, a 500,000 square foot warehouse that installs energy
efficient lighting and an energy efficient heater at the EPAct standards can
obtain up to a $1.80 per square foot tax deduction of $900,000. The UPS
Worldport facility contains 5.2 million in square feet, making it eligible for
$9,360,000 in distribution center tax benefits. These facilities typically have
large flat roofs and are ideal candidates for rooftop solar photovoltaic (P.V.)
installations and 30% tax credits once the energy efficiency upgrades are
accomplished. The energy efficient lighting and heater upgrades are typically
accomplished for far less than $1.80 per square foot leaving excess deduction
to be utilized for the roof upgrades required to prepare for solar and maintain
roof warranties.

Aerotropolis Hotels

The larger the Aerotropolis supporting passenger traffic the more hotels are
required. As Gina La Barre, Vice President of Crowne Plaza Hotels and Resorts
has noted, "We're seeing a rise in airport hotel developments, with nearly 20
airport properties in the current Crowne Plaza Americas portfolio and another
three in the pipeline." Hotels are, by statute, the most favored EPAct tax
deduction category. If lighting is installed at the most common ASHRAE 2004
building energy code or better, the hotel will qualify for the full lighting
EPAct tax deduction. It is important for a hotel to install both energy
efficient building lighting and energy efficient lighting in the guestroom
interior package to qualify for tax deduction. The ASHRAE HVAC comparison for
achieving Hotel EPAct tax deduction are individual room units. This means that
any hotel that installs a central HVAC system will generally qualify for the
HVAC EPAct tax deduction. A 200,000 sq ft hotel with energy-efficient lighting
and central HVAC can qualify for a potential $360,000 EPAct tax incentive.

Aerotropolis Energy Focused Design Process

1) Hire a strong Aerotropolis energy manager that can also communicate to
the off-Airport facilities support structure.

4) Lighting - Set watts per square foot standards at the lower of
Aerotropolis policy, EPAct or legal building code.

5) HVAC- Place a major emphasis on highly energy efficient central
systems.

6) Alternative Energy - makes ample use of alternative energy systems for
HVAC such as geothermal and combined heat and power.

Use solar for sun intensive locations and for areas like New Jersey with
large additional local incentives

7) Utilize scalable central systems to accommodate projected growth.

Conclusion

The Aerotropolis is a huge integrated building complex that will
increasingly depend on. An energy efficient Aerotropolis will lower operating
costs and passenger fees and consume a lot less finite energy resources. We can
all look back at the previous development of our seaports and rail systems and
comment "if only they had done it better". History will repeat itself unless we
recognize that we are in the Aerotropolis era and the time to optimize design
is now. Substantial tax incentives are available to help support the energy
efficient Aerotropolis.